Growth remained strong in 2016, exceeding expectations. Political uncertainty and deleveraging in the private sector have had little impact on domestic demand, which has remained the main driver of activity. Exports of goods and services, supported by competitiveness gains and an excellent tourist season, have performed well. But imports continued to grow at a relatively steady pace, which explains the weak contribution of foreign trade to growth. Business should remain buoyant in 2017, while slowing down somewhat. Consumption (58% of GDP) is expected to be less sustained, due in particular to lower growth in employment. Other stimuli will no longer be in play, such as lower energy prices and lower taxes. Inflation is expected to rise as a result of the gradual rise in oil prices, despite remaining limited by the persistence of unused production capacity and wage moderation. The unemployment rate should continue to decline but should still reach almost 18% by 2017. Investment is expected to slow down only slightly, reflecting an ongoing accommodative monetary policy and strong profit margins. Back in positive territory in 2013, the current account continues to post surpluses despite the recovery in domestic demand. This result reflects the competitiveness gains achieved through the reduction in the cost of labour and the fact that companies have redirected part of their sales to foreign markets, as well as through lower prices of imported energy, although their development is now beginning to reverse.

Exporters were able to recover very early in the crisis and those targeting the domestic market have gradually recovered, including in the construction sector. The reduction in wage costs and the disappearance of non-profitable companies have enabled companies to return to profitability. In addition, their debt declined (132% of GDP in mid-2016 compared to 161% in 2012). Finally, insolvencies have continued to diminish (-20% in 2016, after -22% in 2015). Many measures have been implemented (including several waves of mergers) to bring the banking sector, affected by the bursting of a housing bubble and the recession, afloat. The country emerged successfully in January 2014 from the European aid plan that helped its recapitalisation efforts. The solvency of the sector has improved as has the quality of its portfolio. The weakness of lending activity and the prolonged decline in interest rates still have a negative impact on its profitability. The privatisation of some banks has lagged and the defeasance structure remains loss-making. In addition, Banco Popular Español SA is one of the five European banks that achieved the worst results following the stress tests carried out by the European Banking Authority in July 2016. Although it has improved significantly, as evidenced by the sharp decline in borrowing costs on the bond market since the crisis, sovereign risk remains significant. In August 2016, the European executive, which ultimately decided against imposing sanctions on countries that failed to achieve budgetary targets, granted Spain a further two years to bring its deficit below 3% of GDP (i.e. until 2018). The public debt ratio has stabilised at a high level (about 100% of GDP).

After two legislative elections without a clear majority (December 2015 and June 2016) and several months of a political stalemate, the conservative leader Mariano Rajoy was finally reappointed as the head of the Spanish government at the end of October 2016. The latter was able to obtain the confidence of the parliament only through the abstention of a part of the Socialist MPs and is leading a minority government. He will have the task of maintaining the strict fiscal policies in place (he has however yielded to the condition imposed by the Socialists to raise the minimum wage) and consolidate the recovery underway. This will have brought an end to ten months of political paralysis but the government will remain fragile during the four years of his term of office, with Mr Rajoy being forced to negotiate each of his measures. He will also have to deal with the separatist movement in Catalonia. Uncertainty has persisted in this region since the regional elections held here in September 2015 which saw the victory, in terms of the number of seats, of the pro-independence camp. These parties were weakened for a time because of different ideologies. The Catalan president nevertheless rebuilt their unity, winning a vote of confidence in the regional parliament in September 2016. The latter plans to convene a referendum on independence in September 2017, irrespective of the position of the Spanish government.